China has taken its toughest step in recent memory against the electric-vehicle price war. On December 12, the State Administration for Market Regulation (SAMR) released draft guidance intended to stop a downward spiral of discounting, in which automakers cut stickers below the real cost of building a car. The regulator makes clear that attempts to sell at a loss to drive out competitors carry significant legal risk. The move reads less like a gentle nudge and more like a line in the sand; if it takes hold, the barrage of discounts could subside, restoring clearer price signals for buyers.

The document sets expectations for pricing compliance at every stage—from vehicle and parts manufacturing to pricing strategy and sales practices. It flags misleading price displays, fraud, collusion, and what officials describe as irrational competition, which, in the government’s view, is already distorting the market and hurting both consumers and businesses.

The backdrop is straightforward: overproduction and weak consumer demand have amplified what in China is known as neijuan—hyper-competition with diminishing returns. The market is narrowing quickly: the number of battery-electric and plug-in hybrid brands has dropped from roughly 500 to 129, and industry consulting forecasts that by the end of the decade only about a dozen players will remain financially sound. Price pressure is pushing exports, which has already intensified trade disputes and triggered tariffs on Chinese cars in several countries. If SAMR’s guardrails stick, the contest is more likely to shift back toward technology, quality, and efficiency rather than brute-force underpricing.

It is telling that Xpeng and BYD publicly supported the draft and pledged to strengthen compliance and step away from price manipulation. Their early endorsement hints that the largest players see an upside in clearer rules of engagement. Public comments are being accepted until December 22.